ECB to deliver final rate hike next week – Danske Bank

Next week, the European Central Bank (ECB) will have its Governing Council meeting. Analysts at Danske Bank anticipate that the ECB will implement a final 25 basis points rate hike. According to them, this decision is driven by the persistently strong inflation momentum and the projected inflation levels above the target.

Key Quotes: 

We expect the ECB to deliver a final 25bp rate hike during next week’s ECB meeting due to still too strong inflation momentum and projected inflation above the target. We also expect an advancement of the end to full reinvestment process of PEPP currently guided for Dec24 to be on the cards. Specifically, we expect ECB to ‘task committees’ for an announcement at the October meeting.

The economic outlook has worsened since the July meeting, but the momentum in inflation is yet to show convincing dynamics, and given ECB’s sole inflation mandate, we expect this inflation momentum to prevail. 

A compromise in the governing council could be no hike and an acceleration of the balance sheet normalisation, but given the policy rate is the primary tool to calibrate its monetary policy stance, we expect a rate hike.